Greece. Are We Done Yet?

The Governor of Greece’s central bank, warned the country’s politicians that any failure to implement the strict austerity targets after the May 6 general elections would likely force Greece out of the 17-member euro currency bloc, and added that the Greek economy would contract by a worse-than-expected 5% in 2012.

Not mincing any words, George Provopoulos said that Greece faced a stark and historic choice between overhauling its economy as a member of the currency bloc, or turning back the clock on decades of economic progress and quick and disorderly exit from the euro.

“There is no easy way out of the crisis. The adjustment must be pursued with determination,” Mr. Provopoulos said in a speech. “If, after the elections, there is any question about the will of the new government and society to implement the program, the country will then be at risk of finding itself very quickly in a particularly adverse situation.”

“What is at stake is the choice between an orderly, albeit painstaking, effort to reconstruct the economy within the euro area, with the support of our partners; or a disorderly economic and social regression, taking the country several decades back, and eventually driving it out of the euro area and the European Union,” he said.

On Tuesday, the central bank revised down its original forecast for the Greek economy, forecasting a contraction of 5.0% for 2012, compared with a previous estimate of 4.5%, and compared with a 6.9% decline last year. Greece is in its fifth year of back-to-back annual recessions which is now made much worse by the radical austerity measures imposed by its international lenders in exchange for multiple bailouts to help Greece survive its sovereign debt crisis.

The warning from Mr. Provopoulos, finally laid bare the rare reference to the possibility that Greece may have to leave the euro-zone after all, and revert to a national currency. As we have seen, senior European Union officials tend to carefully avoid the thought of any country leaving the euro bloc, fearing the precedent that could spook investor confidence in the currency and possibly trigger bank runs in other vulnerable euro-zone countries, especially Spain and to a lesser degree, Portugal.

Last month, Greece’s European partners and the IMF agreed to a new €130 billion ($171 billion) bailout to help the country meet its debt servicing for 2014-15, but the conditions for the loan have left deep scars in Greece’s society, making the austerity cuts the central issue in the upcoming elelctions.

Former government workers now living on dwindling pension benefits, current public-sector workers who have had to endure 25-50% pay cuts, and countless private sector workers have suffered deep cuts in disposable income as the government continues to cut spending and raise taxes. More than 20% of the Greek working population is unemployed, along with 50% of those under the age of 25. Joblessness, homelessness, personal bankruptcies, crime, suicide and death from untreated disease are on the rise. Suicide is up 40% since the beginning of the recession. The crime rate has risen 60%. Bankruptcies are now numbering 1 for every 4 citizens. Young people with even some education are leaving the country in record numbers, for opportunities abroad.

Greek voters soon have the task of choosing a successor to the interim government of Prime Minister Lucas Papademos. Public opinion polls show that Greece will have a highly fragmented parliament with at least half of the vote going to parties who oppose the reform program.

Everyone fears therefore, that the next government will not be able to find the votes necessary to push through the highly unpopular reforms, programs that have created violent strikes and street protests.

Greece’s conservative New Democracy is leading opinion polls and its leader, Antonis Samaras, is seen as most likely to be the country’s next prime minister. But, there are not a lot of happy people in Greece. On Sunday, Mr. Samaras presented New Democracy’s economic platform, emphasizing privatizations, a crack-down on tax evasion, and measures to jump-start the moribund economy, but failed to provide any details.

Radical parties on the extreme ends of the political spectrum, have demanded a repeal of all and any austerity programs. And, Greece’s Soviet-style Communist Party, has advocated abandoning the euro altogether. Most opponents of austerity have been able to come up with any alternatives, and what they have proposed failed to resonate with the Germans, who are Greece’s ultimate paymasters.

Still, two-thirds of Greeks now say the mixture of harsh spending cuts, higher taxes and lower wages that have defined the austerity packages must be renegotiated by the next government. The latest economic forecast by the Bank of Greece stands in contrast to the 4.7% decline seen by Greece’s troika of international lenders from the IMF, the European Commission and the ECB. It predicts that recovery—in line with international estimates—will come only by the end of 2013, and only if the country proceeds with its austerity and reform programs. In the meantime, Greece is producing negative nothing in the way of gross domestic product, reaching a record low of -2.8% in the last quarter of 2011.

The Greek citizenry seems to be in a frightening state of denial. May ought to be an interesting month.